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Heinz, Kraft to Create Third-Largest Food & Beverage Co.

Combined company will have $28B in annual revenues and a bevy of brands.

March 25, 2015, 02:30 pm

PITTSBURGH, Pa. and NORTHFIELD, Ill. — Warren Buffett continues to show his affinity for food companies.

The chairman and CEO of Berkshire Hathaway Inc., along with investment group 3G Capital, will merge their jointly owned Pittsburgh-based H.J. Heinz Co. division with Northfield-based Kraft Foods Group Inc., creating the third-largest food and beverage company in North America and the fifth-largest in the world.

Under the terms of the agreement, unanimously approved by both Heinz' and Kraft's boards of directors, Kraft shareholders will own a 49-percent stake in the combined company — to be called The Kraft Heinz Co. — while existing Heinz shareholders will own 51 percent. The combined company will have annual revenues of approximately $28 billion, with eight $1 billion-plus brands.

Berkshire Hathaway and 3G Capital combined to purchase Heinz just two years ago on Valentine's Day 2013.

“I am delighted to play a part in bringing these two winning companies and their iconic brands together," said Buffett, one of the richest men in the world. "This is my kind of transaction, uniting two world-class organizations and delivering shareholder value. I’m excited by the opportunities for what this new combined organization will achieve.”

The transaction, which must be approved by Kraft shareholders and receive required federal regulatory approvals, is expected to close in the second half of 2015. The deal also calls for Kraft stockholders to get $16.50 per share in a one-time dividend once the transaction closes. This equates to a total dividend payout of $10 billion.

“Together we will have some of the most respected, recognized and storied brands in the global food industry, and together we will create an even brighter future,” said John Cahill, Kraft chairman and CEO. “This combination offers significant cash value to our shareholders and the opportunity to be investors in a company very well positioned for growth, especially outside the United States, as we bring Kraft’s iconic brands to international markets. We look forward to uniting with Heinz in what will be an exciting new chapter ahead.”

Among the brands The Kraft Heinz Co. will have under its umbrella are Ore-Ida, Philadelphia, Oscar Mayer, Velveeta, Planters, Kool-Aid, Lea & Perrins, Lunchables, Maxwell House, Bagel Bites and both companies' eponymous brands.

Once the transaction closes, Bernando Hees, current CEO of Heinz, will be named CEO of The Kraft Heinz Co.

"We are thrilled about the unique opportunities this merger will create for our consumers worldwide, as well as our employees and business partners. Together, Heinz and Kraft will be able to achieve rapid expansion while delivering the quality, brands and products that our consumers love,” said Hees. “Over the past two years, we have transformed Heinz into one of the most efficient and profitable food companies in the world while reinvesting behind our key brands and continuing our relentless commitment to quality and innovation.”